I don’t have a scenario in which I’m willing to buy the Euro, at least not yet.
The EUR/USD rallied rather early during the trading session on Monday as traders started to get exuberant about the idea of Russian losses in Ukraine. This is an incredibly stupid way to think about the currency markets. The war is long from over, and quite frankly even if Ukrainian forces were able to kick Russians completely out of the country, there are still plenty of reasons to think that the European Union is going to have a tough go of things over the next several months.
Russia losing the war in Ukraine does not free up natural gas. The only thing that can free up the supply of natural gas will be Vladimir Putin, and he does not seem to be in a charitable mood now. Furthermore, the ECB is stuck with an economy that although showing signs of extreme inflation, will not be able to withstand extraordinarily high-interest rates. The ECB is stuck in a situation where they will have to pick the lesser of 2 evils, and therefore the Euro will continue to get punished.
The Odds Are Against the Euro
- In fact, the market has already given back a substantial amount of the gain, and it looks like we may end up forming a shooting star for the session.
- The 50-Day EMA has been relatively reliable, almost acting like a downtrend line, and therefore I think a lot of technical traders and longer-term bears like myself look at this as an opportunity to pick up “cheap US dollars.”
- This is not to say that we cannot go higher, just that the odds favor a move lower.
- I don’t have a scenario in which I’m willing to buy the Euro, at least not yet.
Remember the bear market rallies tend to be some of the most vicious ones around, so the fact that we went straight up in the air for 3 days in a row should not be a huge surprise. However, that does not mean that everything has changed. When zoomed out on a longer-term chart, the Euro looks like it’s going to zero. (That’s not my call, it’s just what the chart looks like.) Until the Federal Reserve changes its monetary policy, something that’s not happening anytime soon, there will continue to be US dollar strength around the world, especially against the economies that don’t even know if they can heat homes.